The Canadian financial industry experienced a notable increase in cryptocurrency adoption in 2023, as indicated by a recent study conducted by KPMG in Canada.

The number of financial firms providing crypto-related products and services rose by 22% compared to 2021, while institutional investors integrating crypto into their portfolios increased by 26% during the same period.

In terms of services, half of the respondents now offer at least one type of crypto service, up from 41% in 2021. This includes significant growth in crypto trading, custody, clearing, and settlement services, with 52% of firms now providing trading services, a stark rise from none reported in the previous survey.

Furthermore, 39% of respondents reported some form of exposure to crypto, up from 31% in 2021. Notably, direct ownership of digital assets has more than doubled, with 75% of investors now holding these assets compared to 29% two years ago.

Kunal Bhasin, partner and co-leader of KPMG in Canada’s Digital Assets practice, commented that 2023 has seen a strong recovery and increased confidence in cryptoassets following setbacks in previous years, attributing this to factors like growing US debt and inflation driving investors towards cryptocurrencies as a hedge and store of value.

Kareem Sadek, Emerging Technology Risk leader and co-leader of the practice, highlighted regulatory advancements as a key driver of the resurgence, citing Canada's approval of the first Bitcoin and Ethereum ETFs and support for innovative strategies like derivatives and Ethereum staking.

Looking ahead, the survey pointed towards a shift to more diversified investment strategies in the financial services sector, with the average number of services offered per firm increasing to two or three from one to two in 2021. This expansion is largely fueled by increasing client demand for crypto services, influencing 80% of financial services firms compared to 50% two years ago. Institutional investors are also diversifying their portfolios further, with one-third now allocating at least 10% to crypto, up from one-fifth in 2021.

The maturation of the market and improved custody solutions have prompted 67% of investors to make their first crypto investments, a significant increase from 14% in the previous survey.

Sadek believes that the approval of an Ethereum ETF will continue to drive institutional interest and investment in 2024, noting that the recent approval of spot Bitcoin ETFs by the US SEC in January 2024 has attracted established asset managers to the sector.